FIN 522 Financial Administration Assignment #3 Fall 2017
WACC and EnV:EBITDA Ratio Calculations
WACC (Weighted-Average Cost of Capital) and EnV:EBITDA ratio (the firm’s Enterprise Value divided by its EBITDA value (Earnings Before Interest Taxes, Depreciation, and Amortization)). You must complete this assignment. All assignments may be completed individually or by working with ONE other person (see Assignment Write-up Guide for details).
Assignment #3 Details: • Choose three (3) publicly-traded companies in the same industry. (Do not pick Apple as they are in several industries). I can be any industry—automobile, energy, hotel, etc. • Calculate the WACC for each firm • Calculate the EnV:EBITDA ratio for each firm • What is your interpretation of the data you generated? What conclusions (if any) can you make?
Help: Use the CAPM model to calculate the cost of Capital: Use the 10-year treasury rate as the risk-free rate (1.84%) and use 6% as the market premium Cost of Equity = 1.84% + beta*(6%)
We will use a CAPM-like method to calculate the cost of debt for each company:
Cost of debt = risk-free rate + (corporate bond premium)*beta Cost of debt = 1.84% + (2.76%-1.84%)* beta = 1.84% + beta*0.92%
For the industry tax rate, use the value from the closest industry listed in the WACC by Industry table in the Excel workbook “06_Fin522_WACC_to_EnV” (in the “lecture slide” folder)
You can use the EnV:EBITDA Excel template provided — both WACC and EnV:EBITDA calculations are on separate tabs in the “06_Fin522_WACC_to_EnV” excel file in the lecture slide folder.